hey what’s up guys it’s jordan with the laundromat resource podcast this is show 96
and i am bummed that you’re here today because today is a little bit different once again i know i’ve been throwing a
little bit of curveballs here and there but uh i’m excited about this one because i get asked about this so much i
thought you know what let me just do a podcast episode about this and hopefully
it’ll help a lot of people i can point some people to this um and some other resources here in a second so a little
bit about today’s podcast is this is taken from the first half of uh
a webinar that i give a free live webinar that i give about once a month on how to analyze a laundromat deal
okay i get asked how do i determine how much a laundromat is worth what factors go into the valuation uh what should i
be looking for and in this webinar i break it down real simply but real clearly and
i thought it’d be cool as a standalone podcast episode at least for the first half of this webinar uh because i know a
lot of you guys are really just going to benefit from this as you do your analysis you’re looking for a laundromat
uh to to buy so that’s what today is all about uh and i just want to say again i do
this one you know once a month or every six weeks or so you can check out uh all
the all the webinars that we do over here at laundromat resource dot com slash events we do win about once a week
uh we do miss every now and then but uh you can check out laundrymatresource.com events and in fact if you’re listening
to this right when this comes out i’ll actually be doing this webinar on
this thursday which is june uh seven eight nine june 9th of 2022 so uh feel free to go sign up
launderetteresource.com events to join that event on how the webinar on how to
uh how to analyze a laundromat deal you’ll get uh this first half of this will be uh what you’ll get basically
here um but the second half also will be on due diligence and you’ll hear a
little bit about that uh in this webinar um but we’ll go into a lot more detail
in the webinar and again this is a free live webinar it’s interactive you can ask questions
throughout so i encourage you you know if that’s if you’re in the acquisition phase or you’re thinking about going
into the acquisition phase it’s a webinar that is well worth its uh price of admission which is free so uh come
join us over there alignmentresource.com events if you are dying and cannot wait until you
know the next webinar whenever it is uh from when you’re listening to this you can get access to this full webinar and
every other webinar replay of all the webinars we’ve done since the existence of laundromat
resource webinars by joining the pro community you get access to that which is awesome you also
get access to the analysis calculator which really simplifies this whole thing for you you can plug in a few numbers
and it will spit out a value of the laundromat and offer range and a bunch of other details for you
creates a really cool pdf that you can download for yourself that you can share with a lender that you can share with an
investor partner a lot of different things you can do with that analysis calculator and again you can try that
for free at largemouthresource.com calculators and pro community gets unlimited access to that and then one
more thing that i just wanted to throw out that i’m very excited with now this webinar on analyzing a laundromat deal
is awesome a lot of really great details but uh there’s just so much into going
that goes into analyzing a laundromat and there’s a lot that you can do wrong
there’s a lot that you can miss and end up overpaying and so what i’ve been working on for a while now is a full
course on how to analyze a laundromat deal and that is coming out in a couple
weeks we’re just putting the finishing touches on it and i keep thinking of new
uh modules to add to this thing new lessons to add to this thing it’s a full
and complete course so if you really want to have a thorough understanding on how to analyze a laundromat deal this
course is going to be awesome it’s going to be available to the pro community uh it’ll be included in the pro community so
you know again just throwing all the analysis stuff at you right now the webinar replays are there the analysis
calculators there and that analysis course very thorough uh very in-depth uh course on how to
analyze the laundromat deal to make sure you know what you’re getting when you’re buying your laundromat deal
that’s coming in a couple weeks so get excited about that if that is a phase in your journey that you are in
and of course you know also with the pro community there’s uh we have partner discounts another big announcement
coming next week for another partnership that we’ve created that’s going to offer you some more uh pro perks with the pro
community and a whole lot of other stuff like the library of knowledge uh there’s just a whole bunch of stuff
go check it out laundmyresource.compro if you’re interested and again we’re always looking to make this thing even
more valuable my goal is for it to be like a no-brainer uh for you so working
towards that every day all right that was i felt like a big sales pitch sorry i’m not trying to you know pitch a sale
to you here but i’m just excited about everything that’s going on and a huge welcome to all of you guys who have joined both the free community and the
pro community uh over there at london resource dot com slash pro all right uh
man let’s jump into it with this analysis webinar uh the first half of it how to analyze a laundromat deal
hopefully it’s going to help a bunch of you guys out and i’ll see you on the back side to kind of close this thing
out and pump you up to buy your first laundromat your next
laundromat to help you move towards financial freedom that’s what we’re all about here all right first analysis now
when we uh when we analyze the deal we’re gonna do uh mark don’t bait me mark uh i’ll
ask me that question at the very end and then i’ll tell you what kind of discounts are here and there’s some more
coming too so remind me okay so uh when we analyze a deal we’re
going to analyze a deal two times okay well we’re probably going to analyze it more than
more than two times uh but two kind of categories of times okay
now the first there’s i’m just gonna call first analysis second analysis the first analysis
is uh your uh what it sounds like it’s the first time you’re kind of analyzing a deal
and here’s here’s kind of the the caveat to the first analysis and if you’re following
along on the worksheet you’re going to use the numbers the seller gives you in this first analysis
okay going to use the numbers the seller gives you now if you go on a site like uh you know if you type in laundromat
for sale near me some sites gonna pop up some business listing site probably you’re gonna click on it and it’s gonna
give you some information right and a lot of times it’s like hey i’m asking 500 000
you know i’m making you know 20 000 a month of income and you know my expenses
are 12 000 right and you’re like well okay but like are your is your income
really 20 dollars exactly every month right like no probably not it’s general
it’s averages right but we’re going to use these numbers not always but a lot of times how it is we’re gonna use the numbers the seller gives us to do our
first analysis now here’s what’s a little bit uncomfortable for first timers
about this process is that these general unverified
average numbers are actually the numbers that we’re gonna make our offer based
off of okay now most times you’re not gonna get access to
uh to you know specific documents you’re not gonna get access to
uh you know income and expense reports you’re not gonna get access to tax returns or any of that stuff we’ll talk
more about that stuff in a little bit but usually until a business is under contract
you’re not going to get any of the detailed information so you’re going to be basing your offer based off of these
unverified you know round numbers um okay so what do we do about that um we
are going to make our offer with contingencies okay now some of the contingency i’ll
throw out a couple just you know so you you get the idea um but you know some of the contingencies
you might want to include in an offer are going to be you know things like uh contingent on
verification of income and expenses super important to be able to verify that right and if they’re totally off
you want to be able to pull out of that deal right uh contingent on inspections of equipment of plumbing of electrical
maybe of the building different inspections right very uh uh contingent on
um uh loan qualification of a loan right um if you if you go through the loan
process and for whatever reason the lender decides not to lend on it you don’t wanna be stuck uh in that contract right so those kinds of contingencies
you’re going to include in your offer and that uh
is basically the only thing that’s going to give you uh the confidence to be able to make that
offer based on these unverified average numbers okay so just know that that’s the process
almost all the time and you know just be okay with it be comfortable with it okay so now we’re
gonna get numbers such as you know income we’re gonna get numbers such as the expenses uh we’re gonna get you know
uh you know some other numbers maybe the lease amount or how much time is left on the lease stuff like that we’re gonna
get these numbers and the question becomes then what do we do right um so
what we’re going to do is we’re going to run the numbers that’s that second block i’m not going to do that for every blank but second blank there’s run the numbers
okay now what numbers are we running and what are we doing with that so let’s talk about
that for a second we’re talking about valuation right now okay and you may have heard
or you may not have heard that we value any kind of business or commercial real estate we value it based
on the performance not on the potential of that business okay the performance not on the
potential now a lot of times sellers and brokers are going to try to sell you on uh potential of the business saying hey
you know you could add a wash and fold here and that’ll add you know 15 000 of your income well if it was just that
easy they would have done it right you gotta take on the responsibility and the risk and put in the work to do that so
you don’t value the business based on that potential you value it based on how it’s performing now now you may have heard
that you may not have heard that what you don’t hear i’ve never heard anybody else saying this is what exactly does
that mean performance now performance when we say that for a laundromat specifically
is a specific number okay and that number is called the net operating income number um you may have seen it as
ebitda sometimes it’s expressed as cash flow which is actually a little bit different but net operating income ebitda
and you know cash flow a lot of times are used interchangeably so that’s the number that defines the performance of a
business okay and that’s the cornerstone of the value of a laundromat
okay are we all tracking are we good uh let me know if i’m going too fast going too slow uh
talking nonsense any of that stuff let me know okay all right so we’re going to calculate the net
operating income okay that’s our first step for evaluation now it’s a
pretty simple formula it’s just gross income total gross income minus gross expenses before loan
payments and taxes stuff like that okay so you don’t include those in the expenses so you’re going to include your
business expenses like rent like utilities like you know labor insurance
like those kinds of things but you’re not going to include uh the seller’s loan payments and they’re
in their taxes okay because those are treated very differently and it all depends on how you acquire the property and there’s a
lot of things that go into that okay so you don’t include those that’s the net operating income that’s the cornerstone
of the value of the laundromat that’s the performance of the laundromat okay
now once we have that so let’s just take a fictitious example we’ll run it kind of through this whole webinar here we’ll
make it super easy because my math is not that great okay so let’s just say that uh you know we have a laundromat
that’s for sale and the seller says hey it makes ten thousand dollars a month and the expenses are seven thousand
dollars a month okay now obviously net operating income for this laundromat is
right three thousand dollars okay so that’s the performance of the business right or 36 000 for the
year okay so now the question becomes once we have that number what do we do with it
right okay so some of you guys probably know this already we’re going to apply a multiple
to this uh to this net operating income okay and that’s going to help us determine
the value now to put some framework around the multiple the multiple gen
generally is somewhere between three and a half to five on average
um now i will say that right now is a very unique market uh why i shouldn’t say it’s unique but it’s unique as of
lately where there’s almost across the board i do consulting all over the country and beyond but all over the
country here and uh the it’s pretty much everywhere where
there’s a lot more demand than there is supply right now for laundromats um specifically and so just like real
estate actually and so uh that that means that some places that
multiple can actually creep up above that five times rate and especially if you’re like in la
new york new jersey miami chicago some of the texas markets you know some
of that stuff some of the the the best laundromats the biggest best laundry mats out there are trading or selling
for you know up above five five and a half i’ve even seen them up over six times multiple okay but
in general the average is like three and a half to five so that’s what we’re looking at that’s what we’re kind of working with now
you know for let’s let’s throw out our our example here for a second because again my math’s not that good but let’s say we
have this other one that we’re looking at and the net income is 100 000
okay now that means the value of this laundromat can be anywhere between three hundred
and fifty thousand dollars and five hundred thousand dollars right three and a half times that hundred thousand or
five times that hundred thousand what’s a 150 thousand dollar spread for the value of this laundry mat so how do we
know where on the spectrum this laundromat should be valued right so that’s the question how do we
determine what the multiplier is okay so we’re going to determine the multiplier now there’s three main uh three main
categories or three main kind of uh metrics that we need to look at in order
to determine the multiplier now on the worksheet you’ll see there’s only two blanks but two of them are semi-related
so i probably should just add another blank but um you’ll see two blanks there okay so the
first thing that we need to look at now real quick there’s there’s more than these three things that can go into the
multiplier but these three main ones will get you very very close uh to what um the valuation should be okay
uh three years of gross income more or less the value uh three or five years of gross it
really depends on how you run that business uh you will see it across the board so i would not even
the only factor that gross income has is in determining the net income i would
not base value off of gross income because uh you know laundromats are
managed very differently some owners are very good at running their expenses very lean and keeping high margins and high
income and some are not as good and you don’t want to pay based on that gross if
you’re getting a laundromat that’s been poorly managed and the net income is low um so i would base the value off the net
income and don’t even worry about the gross income except for to determine the net income so hopefully that answers
that question uh and i’ve been looking into random business brokers online to see if yeah
laundromats for sale good yeah so be connecting with those guys what if the laundry is it kk this week or kj or what
last week it kind of switched midway so you got to keep me posted uh what’s that what if the laundromat is making nothing
and they want 80. yeah okay so we’re going to talk about that in a second because there is a kkk this week okay good uh there is a oh
net income yeah yeah exactly three to five years of net income right mark um so there is a caveat to this valuation
so we’ll talk about that in a second um okay so good questions
uh okay so how do we determine this multiplier now there’s three main factors the first one is age and
condition of the machines okay in fact i’m going to do this i’m going to share my screen with you for a second
you know we have a uh in a an analysis calculator here that um
on the website i just want to share this with you
because it’ll be easier to kind of visualize this so you can check it out um you can you can try it out for free at london
resource.com calculators or slash analysis calculator um just a quick kind of tour of this thing
uh you know what it’s going to allow you to do is input details of the laundromat and it’s going to spit out a valuation
and a valuation suggested offer range down here too and so we’ll go through this as uh
you know by way of explaining the valuation so real quick unrelated to the valuation you can do
some cool things like you can add a photo um oh man well i don’t have a photo on me right now but you can add a photo and
business details like the address google maps link uh any more kind of information equipment mix all this stuff you can
have it all in one place why this is really cool is number one it helps you kind of keep track for looking at a bunch of laundromats number two when if
you’re working with a lender this is really good to give them all the information they’re going to need
on a laundromat here all in one place and you’ll see at the very end you can actually download a report here and it’ll spit
out a nice clean report that you can give to the lender number three if you’re working with a partner um or you’re trying to raise
money uh this is an awesome tool for that too okay so we’re gonna skip all of this because you know we don’t care that much
now performance remember net operating income that’s what we’re looking for so let’s put in our uh what do we say ten thousand
and seven thousand over here not seventy uh seven okay so that gives
us our net income and our yearly net income now you can get way more granular especially in the second analysis which
we’ll talk about with this where you can actually break it down here and it’s going to give you the
total washer income for the year the average per month and the percentage of the total income for all of these
categories same with expenses and then you can add in loan it’ll give you the net operating income then you
can add in your loans and stuff here and give you the cash flow we’re going to skip all that that will
auto populate all this stuff up here but we’re going to skip all that today just a cool little feature okay so the first uh thing that we need
to look at for the multiplier is age and condition of the machines of the equipment okay aging condition in the
machines now obviously newer equipment is going to be worth
more money than older equipment right and uh so you know obviously that’s going to
command a higher multiple so just to kind of put some constraints around it
now this can vary a little bit but this is these are pretty good i’ve just found after looking at you know hundreds
probably thousands of laundromat deals these are pretty good little ranges here
that you can see zero to five years you can see that that is going to give you the highest multiple here um and then it kind of
goes down from there you know six to nine ten to fourteen so let’s just say our uh should we name our laundromat let’s
name it let’s name it uh my favorite laundromat name ever is the soapy senorita so we will call it the
soapy senior rita right it’s got equipment that’s six to nine years old um so that gives us about a four and a
half uh times multiplier here and that’s the first kind of condition
to help us determine the multiplier the second and third are both related to the lease okay
the first one we’re gonna talk about is the amount of rent the rent amount okay now
uh the the rent amount it’s hard to figure out multiple based on a number
and so the best way that i’ve found to figure out how the rent amount relates to the multiplier is to look at it as a
percentage of the gross income okay so let’s say our lease is two thousand
dollars a month and uh our gross income is you know ten thousand so that gives us a twenty percent
uh uh rent to income uh ratio here okay and that’s
pretty good so 25 is really the number that we’re looking for but let’s say that uh 25
is that’s our kind of unless that’s our target um and then as we go up from there the multiple is going to go down
okay so let’s say that’s our lease amount but there’s also a common area maintenance or a triple net let’s say
it’s a triple net expense and just so we’re on the same page triple net is like the greatest invention of landlords ever commercial
landlords ever basically what that means is the landlord pays zero expenses for the
property and all the tenants split up the expenses for property taxes that’s
one net insurance for the property not for the business but for the property that’s two nets and uh what i said property taxes
insurance and the maintenance costs okay those are the three nets of the triple net right so the the tenants all pay
that and the landlord pays nothing all right so let’s say there’s a triple net expense and let’s call it uh i don’t
know 800 bucks not 8 000. i keep doing that um so now you can see that we’re at
28 of our gross income of that ten thousand dollars and our multiple dropped here
okay to four and a half right and if we you know if if things go up either the rent or the triple net costs or whatever
go up see we’re at thirty percent it dropped a little bit more okay so let’s say this is our this is our lease amount
three grand here okay so that gives us a multiple that puts us around four so now we got a four and a half for the
equipment age we got a four you know for the lease information the the last kind of main factor for the uh
for the multiple is the length of the lease okay so just kind of set the stage for
the length of the lease let’s say that uh you know who wants to own a shoe store here uh sam you were helping me
out earlier so sam owns a shoe store uh you know you can tell he’s a baller and he’s got you know he’s got the shoe
store on lock he’s selling the nikes and everything right well let’s say his lease comes up and his landlord says you
know what your shoes like literally smell you need spray or something i don’t want you in
this you know in this commercial facility anymore i’m not gonna renew your lease right
sam is super bummed out but he goes and rents a u-haul he packs up all his shoe boxes and all the shelves and everything
and he moves down the road to a new space and reopens a week later right
laundromats however uh you can’t really do that right so if a landlord says you know what i don’t
want a laundromat here anymore when that lease is up you got to do something else well it’s
very expensive and very difficult to the point of being almost impractical uh to
move a laundromat and so you’re kind of out of luck and all you
have now is a bunch of equipment that you’re gonna have to haul into your garage or a storage unit or something
until you can figure out a way to sell it and recoup some of your money right it’s not a good situation uh equally bad
if not even worse of a situation if the landlord says we love having you here as a laundromat but your rent’s gonna
double or triple uh going forward right now you’re in a really tough spot
because not only uh is your rent going up so your expenses are going up which means you’re putting less money in your pocket every
month but also remember uh that net income number determines the value of our laundry mat so not only are we
making less every month we’re also uh we’re also losing a bunch of equity in
our business um our net worth is going down right bad situation so because of
that laundromats want long leases long leases are good
okay so you can see here where if we’re at 15 plus years
um you know we’re at a high multiple over here but where if we have like 10 or 11 years that multiple is dropping
you know pretty significantly so uh the amount of the lease as a percentage
of the income and the length of the lease are the the last two kind of main factors
to determine that multiple okay and now what you can do is you know average these numbers
or sometimes you need to weight one a little more than the others so let’s say
you know the let’s say the lease is really good actually but the equipment’s a little older well having a good lease that’s
long and low is actually really really valuable you might want to give that a little more weight than having to replace equipment
in a few years okay so that’s kind of how you would use these
three main factors agent condition of the machines the length of the lease and the amount of the lease
to determine the multiple okay so for our soapy senior rita laundromat we’ve got 36 000
of net income for the year and you can see that our multiple comes
out to be around 4.17 okay so one other factor we added in here in the calculator
because i started seeing this trend you know kind of throughout is where you’re actually located so if you’re in a larger metro area a lot of times there’s
more demand there’s more buyer potential for the laundromat which drives up the
multiple so you can see if we’re in a large uh metro area you know that multiple might be adjusted up to almost
a four and a half here whereas if we’re in rural a rural rule
that’s a hard word to say if you’re on the boondocks right you’ve got a laundromat out there uh you can see it
actually decreases uh could potentially decrease the um the
multiple here and the reason for that is because there’s just generally speaking
less interested buyers uh for a laundromat that’s kind of out in the boonies a
little bit um so that you can you can factor that in or not suburban you know
just kind of makes it uh you know here um okay so you can see now
we’ve got our net operating income we’ve got our multiple and it spits out a value for us
for our laundromat right so our laundry mat’s worth about 150 000 according to the numbers the seller gives us right
now remember these are unverified these are averages they’re round numbers so
you need to you need to know kind of going in that your initial offer is just
that it’s an initial offer you should be prepared probably to uh renegotiate
after we do our second analysis which we’ll talk about in a second okay so it spits out a value for us and then it
gives us kind of a minimum maximum here and this is not these are not hard numbers you can definitely offer less or
more depending on you know the circumstances but this kind of gives you a suggested
range here and then real quick the last thing you can kind of do is download a report which will spit out a pdf
for you that you can see here it’ll have a picture if you uploaded a picture and all your information here
everything you kind of input here and then if you use the the table here it has all that information here you
probably won’t use this in the first analysis but you may want to use it in the second analysis when you get this
kind of detailed information okay uh cool so that’s why i want to show you
in terms of valuation that hopefully was helpful let me un share stop sharing okay
are we all good uh see nothing came in during that whole time for the chat so are we all good
everybody good put your questions in there okay i see a thumbs up thank you harris i appreciate that uh good
mint okay i’m assuming that means good i don’t know or fresh and clean i like that uh okay so that’s evaluation um
so that’s what we’re gonna do for that’s that’s what i mean by we’re gonna run our numbers okay
and that’s gonna give us a value now let me uh let me just tell you before we talk a little bit more um about
uh making our offer and then going into the second analysis i need to tell you the dirty little secret about a
laundromat’s price okay the asking price this is the dirty little secret battle laundromats asking price
[Music] it’s irrelevant you can ignore it completely it literally
does not matter uh all that asking price is is what the seller
wants for that laundromat but it does not matter and it does not factor in whatsoever for the valuation of a
laundromat now let me tell you a story this is a true story about a consulting client of mine
looking for a laundromat in the new jersey area and went around asking laundromat owners they’re interested in
selling found one who said they’re interested in selling uh he said okay cool how much do you want for it they said that we want 850 000 for it i said
all right cool so we gathered information about this laundromat we ran all the valuation numbers and
went through um you know everything we could did an analysis on the area and all that stuff
and spit out a value of 425 000
okay so they’re at 850 and we’re at 425 000 and say hey look you know to my
client hey look this is the um you know this is this is what it’s worth so i think we need to make our
offer at 425. and he was very hesitant to do that you cannot you can you know you can kind of imagine how
uncomfortable that might feel to come to a seller and say ah actually what you thought was worth 850 000 i
think it’s worth 425 000. it’s kind of uncomfortable thing to do but i said hey look this is we’re we’re not
the asking price is irrelevant we’re basing it on the performance of this laundry mat this is what the performance
says it’s worth right so finally mustered up the courage submitted that you know that counter proposal there
and heard crickets crickets for like a few days but you know how like when
you’re waiting on something a few days feels like an eternity and he’s sweating bullets and he’s like i
guess they’re not gonna you know come back you know with a counteroffer after a few days they came back with a
counter offer and their counter offer was 475 000
now just like that their price dropped what 375 thousand
dollars um and the reason for that is because number one that asking price usually is
one of a few different things can either be uh just a number they plucked out of the air
and threw out there it’s like hey be nice to get this amount of money i’ve seen that plenty of times
or it can be a negotiation technique called anchoring you probably heard of it or if not here’s what anchoring is is
like when you’re negotiating with somebody you want to start with the high number and then
even if so like for example if we had said man it feels too uncomfortable to offer 425 let’s offer 600 which still
feels uncomfortable it feels a little better well all of a sudden we just lost 125 000. just like that because
we were anchored by that higher price right and so we felt obligated to offer more than what we really thought we
should right so that’s why i said just ignore it it’s irrelevant
base your offer off the numbers the performance of the business um and then you can negotiate from there that wasn’t
the end of that negotiation we kind of still went back and forth a little bit and ended up finding a deal there but
um but and that’s obviously an extreme example but it illustrates the point that the asking price is just that
asking price and it doesn’t matter what the valuation okay so you can ignore the seller’s asking price and we calculate
the value based on performance okay so let’s say we did all that and you know our our soapy senorita laundromat there
what we say was worth 150 so we offer let’s just say we offered 150 for it maybe there was some back and forth
maybe there wasn’t but we agreed on a deal okay now remember this is all based off of whatever the
seller has told us and we have no idea you know how accurate these numbers are so
when we do our second analysis we’re gonna use so remember first analysis we use the numbers the seller
gives us second analysis we use the numbers that you discover
okay use the numbers that you discover all right now this whole process after
you get an offer accepted is called due diligence right and what that means is we’re going to discover our own numbers
to use and verify uh what the sellers had to say and and
be more precise about it all right i hope you found that uh valuable i know you’re probably itching and dying
to find out about how you use the numbers that you discover to
analyze the deal and how you actually discover those numbers so that you can get a good analysis and again go to
lawnbyresource.com events and uh sign up for the next available analysis webinar
uh that that will be on there hopefully if there’s one coming up there usually is about every four to six weeks or so
another one coming on and if you’re dying again to get into that webinar dig into that along with all the other stuff
we got going on go join the pro community get access to uh that webinar replay and every other
webinar we’ve ever done uh lot of resource dot com pro come join us a lot
of awesome stuff happening over there and more to come all the time all right
hopefully you found that uh enjoyable and valuable and we’ll see you next week with another big announcement uh for the
pro community over there next week all right we’ll see you then peace
